P11D

12 really quick and easy tax tips for PAYE workers

 

  1. Child care vouchers -  if you have children attending a nursery or looked after by a professional childminder, your employer can join a Childcare voucher scheme. This allows for £55 of the weekly cost to be deducted free of tax and NI if you are a basic tax rate payer, or £28 if you are a higher rate tax payer.
  2. Pensions – if you pay into a work pension scheme, 20% tax is automatically deducted. For high rate tax payers, you can claim additional relief either by declaring it on your Self-Assessment or calling the taxman.
  3.  Company cars – are a pain and the tax is huge BUT if you have a company van, the benefit in kind is capped at £3,000 so for a basic rate tax payer the cost of driving is only £600 or £1,200 for a higher rate payer.
  4.  Professional membership fees - your membership to a recognised trade or professional body it is a deductible expense, but not for your hobbies.
  5.  Share incentive schemes - there are loads of schemes that allow either NI or Capital Gains Tax to be saved, you don’t have work for a listed company either.
  6.  Giving your work colleagues a lift to work - if your employer encourages car pooling you can claim 5p a mile for the passenger without incurring any additional tax charge.
  7.  Cycle to work - get your employer to provides a bike both for travel to work and play, it’s not considered as a benefit in kind.
  8. Then after a time you can buy it off them at market value.
  9.  Season ticket loans - your company can advance the cost of an annual season ticket up to £5,000, much cheaper than buying a ticket weekly.
  10. From April 2014 this increases to £10,000 (not really sure if that’s a blessing?)
  11. Electric Cars – from April 2015 there’s no benefit in kind.
  12.  Working from home – it is becoming increasingly more common for staff to work from home. You can claim £4 a week allowance without having to produce receipts.

 

Dispensations

A dispensation is a notice from HMRC that removes the requirement for the employer to report certain expenses and benefits at the end of the tax year on forms P11D or P9D. There is also no need to pay any tax or National Insurance contributions on items covered by a dispensation.

Once granted, dispensations last indefinitely. However, HMRC can review them to make sure that the conditions under which they were issued still apply.

A dispensation includes routine business expenses and benefits. There is no defined list, though the main expenses routinely covered by a dispensation are:

  • travel, including subsistence costs associated with business travel
  • fuel for company cars
  • hire car costs
  • telephones
  • business entertainment expenses
  • credit cards used for business
  • fees and subscriptions

For a company to apply for a dispensation, there must be some basic systems in place. At a minimum this means someone, other than the employee who is claiming the expenses, has to check that the:

  • amount claimed isn’t excessive
  • the claim doesn’t include disallowable items

If it is not possible for you to operate an independent system for checking and authorising expenses claims – for example, because you are the sole director of your company and you have no other employees – you will only be able to obtain a dispensation if you:

  • ensure all expenses claims are supported by receipts for the expenditure
  • demonstrate that the claim relates to expenditure that can be covered by a dispensation – your receipts may be sufficient for this purpose, but if not you must retain additional information

Dispensations can be applied for either in writing or online

Business entertainment, business gifts and benefits

Tax on business entertainment and expenses is an area that can be really confusing for business owners and staff. In general VAT can’t be claimed, though if related to employees’ travel, subsistence or entertainment it’s allowed but with many caveats. If there is a third party (i.e. a prospective client), the VAT can only be claimed on the employee’s portion; and then only if the expenses are incidental.

Confused?

VAT can only be claimed on business gifts up to £50 per recipient per year.

If a business organises employee-only events, the VAT can be reclaimed as long as no third parties attend. If the event is only for directors, the VAT is not reclaimable.

From an income tax and corporation tax perspective, expenses have to be wholly and exclusively for the benefit of the business, otherwise they are disallowed. If such expenses relate to non-staff entertainment they are not allowable.

Gifts are strange, if they relate to some charitable or noble cause then they can be allowable. If it’s taking a client to the races, you have no chance.

Generally alcohol, cigarettes and music are not covered at all, including for staff, so give them a very wide berth. That includes a case of wine for the Chairman, who might then be taxed as a benefit in kind on their P11D or P9D.

NB:

P11D or P9D are end of tax year returns of expenses paid to employees and directors. Companies can get a dispensation from HMRC in some circumstances, see separate blog on this topic.

Employee expenses

When the tax year finishes your employer is obligated to give you a P60 by the 31 May and P11D or P9D if you earn less than £8,500pa by the 6 July for all benefits in kind or expenses that are taxable. Employers can get a dispensation from HMRC in which case you will only get a P11D for items not covered by this.

 

So what next?

A P60 is a statement of earnings for the year showing how much you’ve been paid for the whole tax year, separating your current employer from previous employments, tax paid and your final tax code. It also includes National Insurance paid by you and your employers with your NIC coding; which may change during the year, depending on your circumstances.

Don’t ever lose this, it can’t be replaced and is a permanent record of earnings, tax paid and coding.

It is the employee’s responsibility to ensure all the information is correct including the tax coding. If it is wrong and not enough tax has been collected, HMRC will want it.

The P11D or P9D states the amount of benefits or expenses paid to an employee. If you received taxable benefits your tax free earnings will be reduced by the amount of the benefit received. Again check if they are reflected in your tax coding, if not HMRC will be after you too.

 

So what expenses can be claimed?

The overriding term is “Expenses incurred wholly exclusively and necessarily in the performance of the duties of the employment” s336 ITEPA 2003)

If your employer reimburses your expenses you can’t make any claims.

Travel

To start off you can’t claim travel from home to work. Only from your work place to another work related location. Watch out for home working, even a tax inspector got that wrong. Rules for temporary staff are more complex and there is a 24 month rule to be considered s337 and s338 ITEPA 2003.

If you use your personal vehicle you can claim for expenses not reimbursed by your employer although it depends on the mileage and rate paid.

Subsistence

You can only claim what is not reclaimed from your employer. Note there are some rules on temporary accommodation of which you could fall foul.

Fees and Subscriptions

 

Always a favourite, there has been loads of debate and there is case law and precedent to be careful of.

Subscriptions to named professional bodies are allowed as are examination fees. Training costs are not, even if they are part of your contract of employment; but continued membership of a professional body as a condition of employment is allowed. Confused? Claims are made under s336 ITEPA.

 

Another area to watch out for is where you apportion an expense. This will be disallowed as it is not exclusively incurred. (For the self-employed this criteria does not have to be met).

 

Working from Home

 

You can only claim additional household expenses if the following conditions are met:

  • Substantive duties performed at home
  • Cannot be performed without use of facilities
  • Facilities not available at employer’s premises or job requires
  • Employee has no choice

 

You can claim up to £3 a week without keeping records, or more if justified. It includes all utilities and any business calls. Again no apportionments are allowed eg rent, mortgages or council tax.